depth of market liquidity disappeared..

last week the indexes went into extreme volatility and i did not trade much and if so, it was kind of a testing mode..

this environment is dangerous for order flow trading because the limit side is really shaky.

when you see dom liquidity like this, you immediately have to know there is something wrong with the market.

this is something people who don´t see the market depth never realize - the change of the quoting limits.

trading in this environment is extremely dangerous, the laws that normally works and that i use for trading, does not work in this environment.

it is basically caused by market makers who are no longer interested in opening trades and thus, the short-term price action is much more unpredictable

why i trade intraday

this is the reason why i trade within intraday timeframe and don´t invest long term

i can hardly remember when i saw something similar and i would NOT like be a long-term buy-and-hold investor these days. 

in the markets, there applies a simple formula: the longer the timeframe, the lower the probability of guessing the correct direction

no, i don´t believe in long-term investing. it is a fake idea. all these investing gurus, buffet, hedge funds managers etc.. no one knows what is going to happen on the markets within one hour, how can they say what will happen within a week, month or a year?

short-term investing makes sense to me much more.

i am able to say what is going to happen in my life within one minute from now. much less i can say what is going to happen within one day from now, even less within one week and i have an idea what is going to happen with a year or more..

in the same way it is in the markets. i can quite accurately say what is going to happen with the price within a couple of seconds or minutes. that is all i need to do day trading.

for example today, i took one trade that lasted a couple of minutes. and by the way, it was a long trade! hah.

this was quite an easily readable long entry, due to increase volatility i took only 2 contracts. +330 usd was the result within a couple of minutes. stress-free trading

speculation on thin dom liquidity

an example of relative absence of buy limit orders on depth of market. this time i opened a trade speculating of overturn of liquidity and fall of price.

this is the intermarket state - not very clean but visible .. 

the price should move sharply into the liquidity vacuum, penetrating the relatively smaller limits and hitting the first target. 

in this case only the first target of 10 ticks was hit.. the price is extremely slow in these times..

depth of market - thin vs. thick offered liquidity

here is an interesting situation on depth of market (dom) in intermarket state. it is easily visible that the offered liquidity on the bid side is much thinner that on the ask side.

the presumption is that the price should move into the side of thinner liquidity - it is going to be easier, as there are no "walls" of waiting limit orders. 

it is just a presumption now - no data have been collected to prove this idea.

what we have to take into account in such a situation is the intermarket state and the predictability of retail market orders. here we have ym under the daily low, all other markets are above.

it gives the (stupid) retail traders feeling that ym is cheap and that they should buy it. they start buying.

limit side with quoting market maker´s orders builds thicker layers of sell limit order to retard the movement up and sell in a bigger quantity against the retail public. the movement down is much easier because the quoting buy limit side is weaker.

this is how the situatuion looks at market orders with depth of market. the offered liquidity on dom overtuns and the price sinks into it

what happened next was that the price dropped down against the buying public. in this particular case it would have hit o the first target only but it doesn´t matter - there was a strong buying sentiment on nyse tick at that time and even thought the price went down to hit the stops of public..

here is the footprint chart of this situation

more in depth study of this phenomena needs to be done before taking these situation as a tradable edge

second entry reversal scheme

not a very successful day today. i tried two trades but ended up with zero. 

the performance was poor as i more or less just tested if i am connected to the company ´s server or not :-)

anyway, i have noticed couple of nice situation that could serve as a second entry for a reversal

schematically, it looks like this



this is how it looks on real charts
example 1

example 1 closer look at market orders


example 2

example 2 closer look at market orders